State College, PA-based Rex Energy Corp. (REXX) announced the pricing of its offering of 1400,000 depositary shares – each of which represents 1/100th of one share of 6.0% Series A convertible perpetual preferred stock – with a 30-day over-allotment option for an additional 210,000 depositary shares. The closing of the offering is expected to occur on Aug 18, 2014, subject to certain customary conditions.
The energy explorer plans to use the net proceeds from this offering – approximately $135.2 million after the underwriting discounts and estimated offering expenses – to finance its acreage acquisition in the Butler Operated Area from an affiliate of European oil biggie Royal Dutch Shell plc (RDS.A). The residual amount will be put towards the company’s capital expenditures program and for general corporate purposes. (Read More: Rex Energy (REXX) to Acquire Properties from Shell Affiliate)
Rex Energy, which went public in 2007, is a publicly traded exploration and production company engaged in the acquisition, finding and development of oil and gas properties in the U.S. The company’s operations are concentrated primarily in the liquids-rich acreage of the Appalachian and Illinois regions.
Having done a stellar job at raising volumes and reserves, analysts are predicting strong earnings growth for Rex Energy over the next couple of years. The 2014 Zacks Consensus Estimate is 81 cents, representing 130% earnings per share growth over 2013. Next year’s average forecast is $1.28, corresponding with 59% growth. Moreover, Rex Energy continues to employ a conservative financial policy and a proactive hedging program.
However, as is the case with other exploration and production firms, Rex Energy’s results are directly exposed to oil and gas prices, which are inherently volatile and subject to complex market forces. Realized prices could differ significantly from our estimates, thereby affecting the company’s revenues, earnings and cash flow.
In particular, Rex Energy’s high natural gas exposure raises its sensitivity to gas price fluctuations, compared to its more-diversified independent peers with a balanced oil/gas production profile. With the outlook for natural gas prices remaining weak – particularly in the Appalachia – the company’s results could be adversely affected.
As a result, Rex Energy currently retains a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.